McNeil Pharmaceuticals manufacturers an over-the-counter allergy medication. The company sells both large commercial containers of 1,000 capsules to health care facilities and travel packs of 20 capsules to shops in airports, train stations, and hotels. The following information has been developed to determine if an activity-based costing system would be beneficial:

Activity	Estimated Indirect Costs	Allocation Base	Estimated Quantity of Allocation Base
Materials handling	$96,000	Number of kilos	24,000 kilos
Packaging	210,000	Number of machine hours	3,000 hours
Quality assurance	114,000	Number of samples	1,900 samples
Total indirect costs	$420,000

Actual production information includes the following:

	Commercial Containers	Travel Packs
Units produced	2,800 containers	51,000 packs
Weight in kilos	12,600	10,200
Machine hours	2,240	510
Number of samples	280	765

1.	McNeil's original single plantwide overhead allocation rate costing system allocated indirect costs to products at $140.00 per machine hour. Compute the total indirect costs allocated to the commercial containers and to the travel packs under the original system. Then compute the indirect cost per unit for each product. Round to two decimal places.
2.	Compute the predetermined overhead allocation rate for each activity.
3.	Use the predetermined overhead allocation rates to compute the activity-based costs per unit of the commercial containers and the travel packs. Round to two decimal places. (Hint: First compute the total activity-based costs allocated to each product line, and then compute the cost per unit.)
4.	Compare the indirect activity-based costs per unit to the indirect costs per unit from the traditional system. How have the unit costs changed? Explain why the costs changed.